Applying Silicon Valley culture to carmaking didn't work

Building cars at scale is one of the most complex and capital-intensive manufacturing tasks in the world. To cope with these challenges, carmakers tend to have a highly regimented process for designing and building cars.

Car designs are worked out years in advance, and companies do extensive testing—both of car prototypes and of manufacturing equipment—before launching the main assembly line for a new car model. Employees are expected to scrupulously follow policies and procedures to avoid disrupting the plans of their colleagues.

This runs directly counter to the ethos of Silicon Valley. Because software is so easy to modify and distribute to customers, the software industry tends to value creativity and rapid iteration. Musk, who earned his early millions in the software industry, naturally tried to bring this same agile approach to the car business.

"Everything about Tesla is supposed to be fast, the car, the development process, the launch process," said John Shook, an auto industry veteran who got his start at NUMMI, in a recent podcast. Shook summarized Tesla's approach as "let's start to build the thing before we've actually finished designing it. Because what we're building even for cash-paying customers is actually betas."

"The idea is we can go fast by leaving out steps, and we'll just iterate our way to something really good. But what we can see is that actually creates a lot of problems."

This kind of rapid iteration works well in the software industry because a programmer can change one line of code and then re-build the entire project with the click of a button. But physical manufacturing isn't like that. Car design decisions have to be translated into physical tooling that takes months to build and fine-tune.

And rapid iteration is a nightmare for suppliers, Shook added.

"I talked to a supplier and asked 'who's your worst customer'" Shook said. "The answer was Tesla. How can you be a good supplier when you don't know when you're supposed to deliver?"

"I was giving a talk at a tooling group," said David Cole, an analyst at the Center for Automotive Research. Veteran toolmakers there told Cole that most automakers do prototype tooling when they're designing a vehicle. "They make some vehicles so they can test them and find out if the tooling is good. They said that that was standard procedure at every auto company except for Tesla."

Don't count Tesla out yet

Of course, the obvious response to this is that if Musk had listened to the experts, he probably wouldn't have started Tesla in the first place. Conventional wisdom in the mid-2000s was not very bullish about the prospects for battery electric cars. And there was widespread skepticism that it was even possible to start a new, independent automaker. After all, no American company had managed to break into the car business in many decades.

Musk ignored the conventional wisdom, and he has gotten much further than anyone expected. He has sold hundreds of thousands of cars and has hundreds of thousands more people eager to buy the Model 3 as soon as it's available. Moreover, Tesla has had a huge influence on the broader car industry, forcing every major carmaker to take battery electric vehicles seriously.

It's clearly true that Tesla's frenetic pace of experimentation is not the most efficient way to produce cars in the short run. However, it might be the best way to learn the lessons Tesla needs to learn to produce cars more efficiently in the long run. Tesla hasn't produced very many Model 3 cars over the last nine months, but Musk and his team have learned a lot about how to produce cars efficiently—lessons they'll be able to carry with them in future manufacturing projects.

Musk likely could have spared himself a lot of short-term headaches if he had relied more heavily on auto industry veterans to warn him against repeating mistakes made by other car companies in previous decades. But if he had done that, he would also be less likely to discover ways to optimize the manufacturing process—particularly optimizations that work particularly well for a company specializing entirely in electric vehicles.

The big question, however, is whether Musk will be able to apply the lessons of the last nine months in a disciplined way in the future. Whatever the value of experimentation in the early months of Model 3 production, Tesla is going to have to run its manufacturing efforts more like a conventional automaker in the long run if it wants to produce cars with competitive prices and quality. That won't be easy.

At the same time, Tesla has unique strengths. It has unrivaled expertise in batteries and software. It has an intensely loyal fan base. And it has Musk himself, one of the world's most talented marketers. All of which means that—like Apple—Tesla may be insulated from the intense margin pressures most other carmakers face. A lot of people may be willing to pay a premium to say they drive a Tesla, which means that the company may be able to turn a profit even if its manufacturing process isn't quite as efficient as its more established rivals.

Promoted Comments

Of course, the obvious response to this is that if Musk had listened to the experts, he probably wouldn't have started Tesla in the first place.

I kind of wonder if Elon has internalized this a bit.

Nobody expected Tesla to make it this far.Nobody expected SpaceX to actually launch a rocket.Nobody expected SpaceX to _recover_ a rocket.

At some point, Elon must apply massive discounts to just about any expert advice. "Hey you can't make cars this way" probably sounds a lot like "hey you can't land a rocket" or "EVs are underpowered, unattractive compliance cars that nobody could ever lust for". How does one separate negative expert advice that's actually true from old-guard scared-of-change expert advice that's just overcautious?

At the time, GM had assembly plants all over the country, which was necessary due to relatively restricted transportation modes & capacity. By the 1980s, that wasn't a problem any more, and GM consolidated most production in plants in the central part of the country, shipping finished product by rail and heavy trucks. The automation giggle happened later.

NUMMI was a joint venture of GM and Toyota, in the same factory, but was primarily a Toyota operation. The GM people were there to learn, not run the place. And learn they did, though they were never able to replicate the operation at other plants. At the time (when GM was having its automation debacle, and also adding a lot of automation to regular plants), NUMMI was among the least-automated "GM" plants but also was the most efficient in terms of output per worker. They got the product out and matched Japanese quality/reliability for the most part.

The whole thing came apart when GM went into bankruptcy. Place shut down, and was sold off to Tesla. What it shows is that the physical facility can be used in many different ways - given Tesla's production rate, of very different vehicles from what GM and Toyota built, it's not surprising that more people work there than did in the NUMMI period, and are building fewer cars. The former users of the property, though, can serve as examples of what might eventually happen.

Off topic, but with Tesla essentially being limited to one factory, in a high cost area, near an earthquake fault that's very likely to produce a large one in the next few decades, and with most of their batteries coming from one plant in Nevada that's also in an active seismic area, do we really need to worry about Tesla being around for the long term? They have done some good things, mainly around demonstrating that EVs can be usable and sellable into general-use markets (not just urban-golf-cart niches), and therefore have the potential to be profitable. So even if the company falls down along with its factory in the next Hayward Big One, the information they've developed will live on.

This runs directly counter to the ethos of Silicon Valley. Because software is so easy to modify and distribute to customers, the software industry tends to value creativity and rapid iteration. Musk, who earned his early millions in the software industry, naturally tried to bring this same agile approach to the car business.

...

This kind of rapid iteration works well in the software industry because a programmer can change one line of code and then re-build the entire project with the click of a button. But physical manufacturing isn't like that. Car design decisions have to be translated into physical tooling that takes months to build and fine-tune.

What many people enamored with the idea of agile fail to realize is where the limits are. Agile is efficient when the cost of making a change is lower than the cost of an iteration. In other words, your iterations have to be profitable (at least in aggregate.).

Deploying software to a server costs almost nothing, so you can iterate every five minutes and make money. Except when you make a mistake and deploy something broken, which can cost you in damaged customer reputation. In many cases these are costs that can be absorbed, but fail too often and the product is doomed.

Agile works by holding time and effort constant, but letting scope vary. That means using agile techniques to handle hardware projects where scope can't vary (like deploying routers to remote sites) can fail much more easily. If any component is delayed, the whole product is delayed, and other expenses rise: rescheduling installers often has a cascading effect on the rest of the project.

Deploying unproven hardware to an unproven process to a new manufacturing plant has to be even more risky. Musk's unit of iteration is delivering an entire car. The complexities of each sub-system are staggering; integrating all of them to spit out a car every 10 minutes is amazing. But any hiccup anywhere, and the fragility of the approach is visible, and the costs are real. I really hope he can make it, but the odds are not short.

GM's failure with robotics means that 1980s GM couldn't run robotics with 1980s technology. It means almost nothing about any other company (even 2018 GM or GM subsidiaries) using 2018 technology. There's individual lessons to be learned from the failure, but "you can't build cars with robots" isn't one of them.

No one has said "you can't build cars with robots", because that would be stupid. Every automobile manufacturer in the world builds cars with robots, and has done so for decades. The lesson that GM learned, and what the entire automotive industry has long internalized (and what Musk apparently is just now learning), is one of incremental change: you start with what you already know how to do, and concentrate on improving your processes persistently but gradually. The most recent and successful example of this philosophy in action is the Korean auto industry. Musk thought Tesla was smarter than everyone else and could just skip past the boring incremental improvement steps, just as Roger Smith thought GM could do in the 80s. Well, he just learned the same lesson Roger learned, and if he thought GM's experience had nothing to teach him because "lol GM sux" (like some people in this thread apparently think), then he deserves what he had coming to him.

Musk is not about incremental change. He chooses to bring disruption to where he thinks incremental is strangling what he believes is essential progress. That is key to his every successful, you know, earth-changing, billionaire-level endeavor.

Musk is often about incremental change and SpaceX's success is based on just that. Consider how they have made the Falcon 9 into a world-beater:

Developing the Falcon 1 as a low-cost proof of concept and demonstration that they could be a genuine player by launching a payload to orbit. It wasn't seen as their main launcher, instead it was more of a stepping stone that was basic, relatively low performing, but it was cheap and it was good enough.

Developed the Merlin engine to power it, using the 1950s design concept of the gas-generator cycle burning kerosene and LOX. In its first iteration it used a lot of off-the-shelf or externally designed parts to keep costs down. Unfortunately that meant that its thrust, TWR, and specific impulse would have been unimpressive even in the 1950s, but it was cheap and good enough to do the job.

Once they had demonstrated a capability, they could bring in more money from NASA and others to pay for the development of the Falcon 9. Cost control and simplicity dominated every stage, for example, rather than creating a newer, bigger engine, it would use nine of the improved version of the existing Merlin. Improvements to Falcon that allowed it to lift ever bigger payloads haven't come from radical changes, rather the tanks have been stretched to hold more fuel and the engines have been upgraded regularly while still keeping to the same fundamental design.

Even reuse has been approached in a conservative way. Falcon 9 had to be competitive in its own right and never relied on reusability in order to achieve lower launch costs than other key players in the market. The capability was tested bit by bit and hardware was added and refined after each flight to correct problems as they arose. A critical thing was that these experiments never got in the way of providing launch services and SpaceX could test out a landing method or attempt a full stage recovery without having any impact on a client or their payload. Tesla don't have that luxury if they want to improve their cars as they go along.

While I agree with some of the point in the story, some of the background facts are very misleading.

NUMMI was an assembly plant. The large production volume was from the factory putting together 'knock-down' kits from Toyota. The only reason for it to exist was to avoid import tariffs. There was modest domestic content, largely elements such as windshields that needed to conform to unique US DOT requirements. But for the most part it was taking major subassemblies out of a container from Japan, bolting them together, and proclaiming "Made in the USA".

All automotive factories since the River Rouge Complex are, to some degree, assembling sub-units manufactured elsewhere. That makes the number of employees or hours per car impossible to compare fairly.